Introduction
A show cause notice is a preliminary step taken by an authority before taking any disciplinary action against anyone. It gives a chance to the recipient to explain why a certain action should not be taken against him. In Goods and Services Tax Act, 2017, the provision of issuing a show cause notice is dealt under section 73 of the Act whereby the department issues Show Cause Notice (SCN) in order to give chance to the tax payer as to explain why tax, interest or penalty should not be levied?
The basic difference between issuance of show cause notice under section 73 and section 74 is the “intention” to commit fraud, willful misstatement or misrepresentation of facts. The presence of intention to commit fraud is what differentiates section 74 from section 73. However, the department is bound to issue show cause notice under both the sections.
Ingredients of a show cause notice under section 73:
- Section 73(1) states that the notice shall be served in following circumstances:
- Tax has not been paid or short paid or erroneously refunded.
- Where ITC has been wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts to evade tax.
- Section 73(2) states that the Proper Officer shall issue the notice at least three months prior to the time limit specified in sub section (1) for issuance of order.
- As per subsection (3) of section 73 of the Act, the proper officer may serve a statement containing tax not paid, short paid or erroneously refunded or ITC wrongly availed or utilized.
- The notice shall be in the Form DRC-01.
- The reasonable time to reply the notice shall not be less than 30 days.
- Principles of natural justice has to be followed.
Judiciary on Show Cause Notice under GST
- Hon’ble Jharkhand High Court in the case of CJ Darcl Logistics Limited V. Union of India represented through Secretary vide W.P. (T) No. 215 of 2022 whereby it was held that the revenue department cannot go beyond the scope of Show cause notice.
- Hon’ble Allahabad High Court in the case of Yash Building Material V. State of U.P. & Others vide A.P. (Tax) No. 1435 of 2022 whereby the Court has held that the demand orders passed without a valid SCN are legally baseless.
Comments:
Hence, issuance of a valid SCN is in the prescribed form is important as per section 73/74 of the Act under the Act otherwise the demand created afterwards will not sustain. On the other hand, the revenue authorities should honor the reply filed by the assesse in respect of the alleged SCN and also provide him an opportunity of being heard before reaching to any conclusion.